Loans 101 Becky Davis and Debbie Murphy Ascendium Education Solutions Objectives 1 2 3 Purpose and types of Federal loans Life cycle of a Federal loan Repayment options 2019 ILASFAA Annual Conference 2 Objectives 4 Delinquency and default 5 Counseling resources 2019 ILASFAA Annual Conference 3 1
Purpose and Types of Federal Loans 2019 ILASFAA Annual Conference 4 Purpose of Loans To pay for educational expenses Can be used to supplement other types of aid Should be used as last resort 2019 ILASFAA Annual Conference 5 Types of Loan Programs William D. Ford Direct Loan (Direct Loan) Federal Perkins Loan Federal Family Education Loan (FFELP) 2019 ILASFAA Annual Conference 6 2
Types of Direct Loans Direct Subsidized Loan Direct Unsubsidized Loan Direct PLUS Loan Direct Parent PLUS Direct Graduate PLUS 2019 ILASFAA Annual Conference 7 Direct Loan Similarities Completion of the Free Application for Federal Student Aid (FAFSA) is required Student must be: Enrolled at least half-time Make satisfactory progress (SAP) Be eligible for Title IV funds Funds are provided by the federal government Have rates and fees that may change from year to year 2019 ILASFAA Annual Conference 8 Direct Subsidized Loans Awarded to undergraduates only Student must demonstrate need for funds Part of the financial aid package No credit check required 2019 ILASFAA Annual Conference 9 3
Direct Subsidized Loans Interest does not accrue when student is: Enrolled at least half-time In grace period (certain loans) In deferment status Interest rate is 5.05% for loans disbursed on/after 7/1/18 and before 7/1/19 Repayment begins six months after student ceases half-time enrollment 2019 ILASFAA Annual Conference 10 Direct Subsidized Loans Maximum Eligibility Period Guidelines Program Length 5-Year Bachelor s Degree 4-Year Bachelor s Degree 2-Year Associate s Degree 2-Year Certificate 1-Year Certificate 18-Week Certificate 10-Week Certificate Maximum Eligibility Period 7.50 Years 6.00 Years 3.00 Years 3.00 Years 1.50 Years 27 Weeks 15 Weeks 2019 ILASFAA Annual Conference 11 Direct Unsubsidized Loans Must be first awarded full subsidized loan eligibility Available in addition to the need-based subsidized loan Student does not have to demonstrate need Can be used to replace the EFC No credit check required 2019 ILASFAA Annual Conference 12 4
Direct Unsubsidized Loans Student is responsible for interest May pay interest or allow it to accrue and capitalized For loans disbursed on/after 7/1/18 and before 7/1/19 interest rate is: Undergraduate 5.05% Graduate/professional 6.6% Repayment begins six months after student ceases half-time enrollment 2019 ILASFAA Annual Conference 13 Additional Unsubsidized Loans For dependent, undergraduate students whose parents cannot get a Parent PLUS loan Not based on need Amounts are determined by student s year in school 2019 ILASFAA Annual Conference 14 Direct PLUS Loans Two types of PLUS loan borrowers Parents of dependent, undergraduate students Graduate and professional students Requires credit check No adverse credit history May borrow up to the COA less other aid received 2019 ILASFAA Annual Conference 15 5
Direct PLUS Loans Student and/or parent is responsible for the interest May pay interest or allow it to accrue and capitalized Interest rate is 7.6% for loans disbursed on/after 7/1/18 and before 7/1/19 2019 ILASFAA Annual Conference 16 Direct PLUS Loans Grad PLUS loans will be placed in deferment while borrower is still in school Parent PLUS loans will begin repayment upon disbursement unless parent requests a deferment 2019 ILASFAA Annual Conference 17 Perkins Loans Under federal law, the authority for schools to make new Perkins Loans ended on Sept. 30, 2017, and final disbursements were permitted through June 30, 2018. As a result, students can no longer receive Perkins Loans. A borrower who received a Perkins Loan can learn more about managing the repayment of the loan by contacting either the school that made the loan or the school s loan servicer. 2019 ILASFAA Annual Conference 18 6
Loan Fees, Rates, and Limits Loan Type Loan Fee Interest Rate Grace Period Annual Limit Lifetime Limit Year 1 $3,500 Direct Subsidized 1.062% 5.05% (10/1/18 10/1/19) (7/1/18 6/30/19) 6 months Year 2 $4,500 Years 3 to 5 $5,500 $23,000 Direct Unsubsidized 5.05% (7/1/18 6/30/19) UG 1.062% (10/1/18 10/1/19) 6.6% (7/1/18 6/30/19 Grad 6 months Dep UG Year 1-5 $2,000 *$31,000 Year 1-2 $6,000 Ind UG *$57,500 Year 3-5 $7,000 Grad/Prof All $20,500 $138, 500 Direct Parent PLUS 4.248% 7.6% (10/1/18 10/1/19) (7/1/18 6/30/19) None Up to the COA No limit Direct Graduate PLUS 4.272% 7.6% (10/1/18 10/1/19) (7/1/18 6/30/19) None Up to the COA No limit Perkins None 5% 9 months Up to $5,500 for UG Up to $8,000 for Grad/Prof $27,500 UG $60,000 Grad/Prof 2019 ILASFAA Annual Conference 19 Test Your Knowledge Which of the following are true? A B C Completion of the FAFSA is not required fora Parent PLUS loan Subsidized borrowers do not need to demonstrate financial need Interest is the responsibility of the borrower while he/she is in school on unsubsidized loans 2019 ILASFAA Annual Conference 20 The Life Cycle of a Federal Loan 2019 ILASFAA Annual Conference 21 7
Life Cycle of a Federal Loan Student completes the Free Application for Federal Student Aid (FAFSA) School determines eligibility and calculates award Borrower(s) completes the Master Promissory Note (MPN) Credit check is conducted for PLUS borrowers Borrower(s) confirms the loan Loan funds are disbursed to school Entrance counseling required for first-year, first-time borrower 2019 ILASFAA Annual Conference 22 Life Cycle of a Federal Loan Student completes exit counseling required when no longer attending or drop below half-time Student enters grace period Student receives disclosure Student enters repayment Student pays loans in full or loan is discharge or forgiven 2019 ILASFAA Annual Conference 23 Repayment Options 2019 ILASFAA Annual Conference 24 8
Loan Repayment Plans There are eight repayment plans available for Direct Subsidized, Unsubsidized, and Graduate PLUS loans Standard Graduated Extended Income-Based Pay As You Earn Revised Pay As You Earn Income-Contingent Alternative 2019 ILASFAA Annual Conference 25 Repayment Plans Non income-driven Standard Graduated Extended Alternative Income-driven Income-Based (IBR) Pay As You Earn Revised Pay As You Earn (REPAYE) Income-Contingent (ICR) 2019 ILASFAA Annual Conference 26 Standard Repayment Direct and FFELP loan borrowers Equal monthly payments for up to 10 years Borrowers will automatically be enrolled in the standard repayment plan unless they choose another plan 2019 ILASFAA Annual Conference 27 9
Graduated Repayment Direct and FFELP loan borrowers Monthly payments start lower and gradually increase over time for up to 10 years The monthly payment will never be less than the amount of interest that accrues between payments 2019 ILASFAA Annual Conference 28 Extended Repayment Direct and FFELP loan borrowers Payments that are fixed or gradually increase over 25 years for loan debt that exceeds $30,000 with Direct or FFELP loans More interest is paid over the life of the loan 2019 ILASFAA Annual Conference 29 Alternative Repayment Direct loan borrowers Must demonstrate exceptional circumstances Minimum monthly payment of $5 Maximum 30-year repayment term 2019 ILASFAA Annual Conference 30 10
Income-Driven Repayment Plans Allows borrower to have a loan payment relative to their income There are four IDR plans Income-Based Repayment (IBR) Pay As You Earn Revised Pay As You Earn (REPAYE) Income-Contingent Repayment (ICR) Balances are forgiven if the loans are not repaid in full at the end of the qualified repayment period 2019 ILASFAA Annual Conference 31 Income-Based Repayment (IBR) IBR prior to July 1, 2014 Direct and FFELP loan borrowers Excludes Parent PLUS or Direct or Federal consolidation loans that repaid a Parent PLUS Must meet partial financial hardship criteria At the end of qualified repayment remaining balance can be forgiven 2019 ILASFAA Annual Conference 32 Income-Based Repayment (IBR) IBR after July 1, 2014 Direct loan borrowers Excludes Parent PLUS or Direct or Federal consolidation loans that repaid a Parent PLUS Must meet partial financial hardship criteria At the end of qualified repayment remaining balance can be forgiven 2019 ILASFAA Annual Conference 33 11
IBR Repayment Terms IBR prior to July 1, 2014 15% of discretionary income Balance forgiven after 25 years of repayment IBR after July 1, 2014 10% of discretionary income Balance forgiven after 20 years of repayment 2019 ILASFAA Annual Conference 34 Pay As You Earn Available for Direct Loan borrowers Excludes Parent PLUS loan or Consolidation loan that repaid a Parent PLUS loan Must meet partial financial hardship Payment is capped at 10% of borrower s discretionary income Must meet the definition of a new borrower At the end of 20 years of qualified repayment remaining balance can be forgiven 2019 ILASFAA Annual Conference 35 Who is Considered a New Borrower? A NEW BORROWER IS A STUDENT WHO Has no outstanding DL or FFELP balance as of 10/1/07, or no outstanding balance on the date a borrower receives a new loan after 10/1/07; AND Received a disbursement of a DL on/after 10/1/11 OR Received a Direct Consolidation loan based on application received on/after 10/1/11, unless it repays a DL or FFELP loan that was outstanding as of 10/1/07 2019 ILASFAA Annual Conference 36 12
Revised Pay As You Earn (REPAYE) Available for Direct Loan borrowers Excludes Parent PLUS loan or Consolidation loan that repaid a Parent PLUS loan Partial financial hardship is not required Payments are limited to 10% of discretionary income Payment is not capped at 10-year standard repayment amount 2019 ILASFAA Annual Conference 37 Revised Pay As You Earn At the end of qualified repayment remaining balance is forgiven 20 years for undergraduate borrowers 25 years for graduate or professional borrowers 2019 ILASFAA Annual Conference 38 Income-Contingent Repayment Available for Direct Loan borrowers Perkins loan eligible, if included in a Direct Consolidation loan Includes Parent PLUS loan if included in a Direct Consolidation Loan after 7/1/06 Partial financial hardship is not required 2019 ILASFAA Annual Conference 39 13
Income-Contingent Repayment Monthly payments are the lesser of: The amount they would pay if they repaid their loan in 12 years multiplied by an income percentage factor that varies with their annual income; or 20% of their monthly discretionary income At the end of 25 years of qualified repayment remaining balance is forgiven 2019 ILASFAA Annual Conference 40 Income-Driven Repayment Plans HOW DOES A PERSON APPLY FOR IDR? The borrower must complete the Income-Driven Repayment Plan Request online or by paper form at studentloans.gov Borrower must be able to document income by using the IRS DRT (online) or providing a copy of the IRS tax transcript Alternate documentation: must be submitted with the IDR Plan Request form; if no income, no additional documentation is required 2019 ILASFAA Annual Conference 41 IDR Pros and Cons Pros May provide borrowers with a more affordable monthly payment Some principal and interest could be forgiven Cons Must reapply each year Borrowers could pay more interest over time Forgiven amount is considered taxable income 2019 ILASFAA Annual Conference 42 14
Direct Consolidation Loans Combines Federal loans into a single loan Existing loans are paid in full and replaced with a new loan Provides borrowers a lower monthly payment Establishes new interest rate, repayment schedule, and terms The interest rate is a weighted average of underlying loans rounded up to the next 1/8 of one percent 2019 ILASFAA Annual Conference 43 Direct Consolidation Loans HOW DOES A PERSON APPLY FOR DCL? The borrower must complete a Direct Consolidation Loan Application and Promissory note available at: studentloans.gov Things a borrower should know about DCL Repayment options are available for consolidation loans Subsidized loans retain the interest subsidy during deferments Perkins loans lose interest subsidy and cancellation options FFELP borrower benefits may be lost Private loans may not be included in a Direct Consolidation loan 2019 ILASFAA Annual Conference 44 Deferment and Forbearance Deferment Postponement of loan payments that a borrower is entitled to receive as long as he/she meets eligibility requirements Borrower s eligibility depends on meeting specific criteria, the loan type, and the date the borrower received his/her first loan Postponement period can vary depending on type Borrower resumes payment no later than 60 days of expiration Forbearance Temporary postponement, reduction, or repayment extension of loan payments Interest accrues on all loans during the forbearance Offered at the discretion of the lender (except mandatory forbearance) Typically granted for up to 12-month intervals Borrower resumes payment no later than 60 days of expiration 2019 ILASFAA Annual Conference 45 15
Deferment Criteria Types of Deferment In-school Graduate Fellowship Rehabilitation Training Program Unemployment Economic Hardship Military Length of Deferment No time limit No time limit No time limit Up to 36 months Up to 36 months No time limit 2019 ILASFAA Annual Conference 46 Test Your Knowledge Which of the following is false? A B C Interest does not accrue during a deferment or forbearance Borrowers remain in the standard repayment plan unless they choose another option Forgiveness on income-driven repayment plans is taxable income 2019 ILASFAA Annual Conference 47 Delinquency and Default 2019 ILASFAA Annual Conference 48 16
Delinquency A loan becomes delinquent the first day after a payment is missed Loan servicers report all delinquencies of at least 90 days to the three major credit reporting agencies 2019 ILASFAA Annual Conference 49 Default Direct Loans A loan is in default after 270 days of non-payment Borrower can still resolve delinquency with a payment, deferment, or forbearance up to day 360 After 360 of days, the loan is sent to the Debt Management and Collection Systems (DMCS) 2019 ILASFAA Annual Conference 50 Impact of Default For students Ineligibility for future financial aid Damaged credit rating for at least seven years Possible seizure of federal tax refunds Collection fees assessed Possible wages garnished For schools Possible sanctions Loss of eligibility to participate in Title IV programs 2019 ILASFAA Annual Conference 51 17
Test Your Knowledge Which of the following is false? A B C Borrowers can resolve a default with a forbearance after 360 days delinquent Borrowers with defaulted loans are not eligible for Title IV aid Schools with high default rates are subject to loss of Title IV eligibility 2019 ILASFAA Annual Conference 52 Counseling Resources 2019 ILASFAA Annual Conference 53 Basic Requirement Entrance and exit counseling required for Direct Subsidized, Unsubsidized, and Graduate PLUS loan borrowers Entrance and exit counseling studentloans.gov Federal Student Aid PIN pin.ed.gov 2019 ILASFAA Annual Conference 54 18
Beyond the Basics Additional counseling can help students better understand their borrowing obligations Help students to know: The difference between private and federal loans The cost of borrowing What to expect when it s time to repay Who to contact for assistance 2019 ILASFAA Annual Conference 55 The National Student Loan Data System (NSLDS) Tracks enrollment of all student loan borrowers Contains history of all Federal loans Contains records on recipients of Federal grants Students can access at nslds.ed.gov 2019 ILASFAA Annual Conference 56 Repayment Estimator Repayment Estimator at studentloans.gov Can use to compare repayment plans o Monthly payment o Repayment plan eligibility o Total interest paid o Total cost of plan Log in with FSA ID 2019 ILASFAA Annual Conference 57 19
Conclusion Help your students: Understand their obligations as a borrower Prepare for repayment Utilize available resources from Ascendium Education Solutions and the Department of Education 2019 ILASFAA Annual Conference 58 Thanks for Attending 2019 ILASFAA Annual Conference 59 20